Alice in Wonderland has Nothing on NYGBL Section 518
For decades, New York State has prohibited merchants from imposing a “surcharge” for the use of credit cards instead of cash. Recently, the New York State Court of Appeals in Expressions Hair Design v. Schneiderman reversed this long-held rule, allowing merchants to openly impose this surcharge to charge to the price of goods in New York. See 32 N.Y.3d 382 (2018) for the full decision.
Typically, credit card companies charge merchants a commission fee ranging from 1 to 4 percent of the value of each transaction for using credit cards. These fees may be absorbed by the merchant or may be passed on to the consumer in one of two ways. One, the merchant may charge a higher fee to consumers regardless of manner of payment or, two, the merchant may institute a surcharge specifically for users of credit cards. The legality of the ladder has been in constant confusion since the enactment of New York General Business Law Section § 518 in 1984, which prohibited the institution of surcharges for credit card use.
Section 518, states that “[n]o seller…may impose a surcharge on a[n] [individual] who elects to use a credit card in lieu of payment by cash....” While seemingly innocuous, the District Court of New York found the statute so baffling it began its decision by stating, “Alice in Wonderland has nothing on Section 518 of the New York General Business Law.” Perhaps most astonishingly, those found in violation of this often-misconstrued Section are subject to civil sanctions and criminal enforcement actions.
Despite the threat of civil or even criminal enforcement actions, industries in New York have frequently and flagrantly disregarded Section 518. Gas stations were perhaps the most infamous industry in implementing an additional fee for use of credit cards. For years, this and other industries took advantage of the fact that “surcharge” was not defined by statute. These industries argued that they presented no surcharge to consumers, but were merely offering a cash discount.
Whether due to industries’ use of the “cash discount loophole” or due to the statutes own internal inscrutable language, Section 518 has rarely been prosecuted. Though prosecutions under the statute remained rare, over the years, the New York Attorney General’s Office reached numerous settlement agreements with businesses reported for violations.
In Expressions Hair Design v. Schneiderman, the New York Court of Appeals, partially settled the issue of whether merchants could institute a “surcharge.” The Court ruled that merchants could charge more for credit card transactions so long as the merchant displayed both the price for cash and the price for credit cards together. However, the use of a single flat fee for credit card use was still found to be an impermissable surcharge. In bringing the entire issue even further down the rabbit hole, the court seemed to indicate that listing the higher credit card price and offering a flat percent “reduction” for use of cash may be permissible. Due to this ambiguity, it is likely that the debate over what is a “surcharge,” from which consumers need shielding and what is a “discount,” which consumers happily embrace, will continue.
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